Tag: management effectiveness

Agility is paramount in the CPG industry. This is driven by rapidly changing consumer tastes and preferences, competition – which drives the need for greater differentiation, varying degrees of automation and manual labor forces, constantly changing packaging technology and platforms, and several other factors. Agility is simply defined as the efficiency of change. In other words, how efficiently can you go from your current state to your desired future state? In the CPG industry especially, the future state is a constantly moving target. If your supply chain can’t keep up with the rate of change, then it has no alternative than to become obsolete. This explains the significance of increasing Manufacturing or Operational Agility.

Satisfy a more diverse SKU portfolio with fewer production lines, requiring a smaller manufacturing footprint

Drastically reduce the product development cycle from ideation to commercialization

Scale production capacity to fit fluctuating demand without inflating costs

Significantly reduce the time frame from improvement idea to gainful implementation

Create opportunities to increase asset utilization by picking up orders from competitors and store-branded products

In the CPG industry, the more agile factories or operations win in the long run. Agility helps to keep costs low while making the changes needed to stay competitive. It also brings down the risk of changes significantly since they are less cost prohibitive. There are three main areas where CPG companies need to focus on increasing Agility; people, processes, technology. And there are several approaches to increasing Agility in each of these areas.

PEOPLE

People Agility is referred to as scaling the labor force up or down to meet immediate production needs without inflating costs. This can only effectively be done without compromising critical process knowledge and skill sets. Many CPG companies experience significant peaks and valleys in demand throughout the year. In many cases, manufacturers build inventory or find some way to avoid needing to scale man-power, maintaining a flat workforce with “normal” work hours for each employee. What ends up happening is that they eat labor costs during valleys because productivity slows and people are idle; then they eat labor costs during peaks due to excessive overtime. When you maintain a full workforce when productivity slows, the workforce loses its operational discipline, which is needed for when production demand is high. This creates frustration for both management and the labor force. Its also an expensive way to manage a factory. Below are a few ways to increase the scale-ability of the labor force:

Use a fixed crew and fixed production rates but vary production hours based on demand. This would make for inconsistent work hours for employees but help maintain the operational discipline needed for peak volume times. During valleys in demand, production could be scheduled at standard rates; when the crew finishes the work, they could be deployed to other productive work or process improvement projects.

Have a fixed full-time crew (based on business case analysis) and use temps to support surges in volume

Run with a fixed crew (again, based on business case analysis) and outsource surge volumes to contract manufacturers

PROCESSES

Process Agility refers to the efficiency of changing processes and procedures to meet business needs. In CPG, as well as many other industries, processes need to change constantly to increase competitiveness, reduce costs, increase quality, improve safety, increase moral, improve service levels ,and many other important reasons. Processes in this sense include the specific steps taken by people or technology to get something done. The more Agile a factory or operation, the easier it is to change processes to suit the needs of the business. For a factory that lacks Process Agility, it requires at least 5 years to implement a Continuous Improvement program such as Lean Manufacturing. Contrarily for a factory with great Process Agility, Lean could be implemented and self-sustaining in as few as 2 years. Below are some techniques to be employed to increase Process Agility:

Implement systematic management systems that drive operational discipline such as Impruver. Impruver sets standards for the management function and is designed to drive the discipline needed for Continuous Improvement. Click this link for more information on Impruver.com.

Develop and execute a world-class training program. This helps to significantly reduce the learning curve for on-boarding new employees and implementing process changes with current employees. Click this link for more details how a world-class training function works.

Employ Lean practices such as Standard Work to develop efficient processes and reduce learning curves. Also use tools such as Kaizen and Root Cause Analysis to drive rapid process improvement.

TECHNOLOGY

Technological Agility refers to the ease of changing the technological capabilities used for the efficient making of a product. This could mean changing packaging ability from a canning to a pouch filling; or from vacuum sealing to over-wrap; or from a carton to a sleeve…I think you get the idea. In the CPG industry, formats change frequently. By now, every marketer in CPG has identified the impact that an attractive new packaging format has on product sales. Those same marketers can tell you how frustrating it is when they get push-back from the manufacturing folks that “there’s no way we can do that”. Well the truth is that it can be done – it can always be done. The only factor is what it’s going to cost, which is a function of Technological Agility. A factory with high Tech Agility can run multiple packaging formats on the same production line. On the other hand, a factory with low Tech Agility needs a separate line per format at best; and at worst, simply doesn’t have the capability to efficiently process different formats. Below are a few ways to improve Tech Agility:

Use of sensors and servo motors to automatically adjust for changes in package sizes. This also helps for automating product changeovers.

Design line layouts that allow processing equipment to be swapped in and out based on production needs. This creates modularity and makes better use of the factory footprint.

Outsource smaller runs to contract manufacturers to test market results instead of investing in new equipment

Employ 3D printing for late-stage-customization to increase SKU variety without making significant changes in other production areas

Engage plant technology and process experts in the product development and design processes. This reduces the time wasted on designs that are not feasible and cannot be manufactured.

Leverage data sharing systems so that information from across the supply chain can be used in the product development process. This allows people to understand performance data, capabilities, capacities, costs and other key information across the supply chain.

As new generations usher in new ways of experiencing life, manufacturers in the CPG industry need to have the Agility to keep up with changes without inflating costs. Agility not only enables market leadership, it also removes a significant amount of risk from experimentation – bringing the fun back into the factory. An Agile factory or supply chain creates business opportunities for itself and its customers, who may also need contracted work for store-branded products in new and exciting formats.

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In manufacturing, change happens – rather you’re ready for it or not. Sometimes these changes are expected and sometimes not so much. There are many forces acting on the manufacturing system (or any business system for that matter). These forces create pockets of pressure and vacuums that ultimately result in disruptions to the manufacturing system if not handled effectively. There are many sources that these forces can emerge such as: corporate mandates, governmental mandates, personnel changes, competition activity, technological advancement, customer taste changes, new market pursuits, improvement events, etc. This list barely chips the iceburg. When the forces of change becomes strong enough in any direction, the manufacturing system has to have the agility to quickly adapt and sustain acceptable productivity levels. Change is risky but absolutely necessary; it is also unavoidable. With that said, how can a manufacturing system be in pursuit of perfection, when the system is in a constant state a flux? While I’m a huge proponent of Lean Manufacturing, the reality that the manufacturing system is in a constant state of flux highlights a limitation of Lean, which sometimes assumes that processes remain generally the same. It also exposes the urgency of Agile Manufacturing.

An effective Change Management System is essential in our pursuit of the perfect manufacturing system. This is based on the definition of a perfect manufacturing system being one that can sustain above 85% OEE, even under changes of any frequency and magnitude. This being a manufacturing system that is both Lean and Agile – or Leagile as some are now calling it. A Change Management System can help prime the organization for upcoming changes as to minimize disruption and avoid compromising any element of manufacturing execution. There are several critical components of any effective Change Management System:

1 – Change Tracking Log – This provides a database of past and future changes and allows effective prioritization. The log allows for changes to be spread out on the factory’s calendar so that non-critical changes can be scheduled around critical ones. The Tracking Log also helps to predict how upcoming changes will affect one another. Finally, the Tracking Log helps to identify which key stakeholders have signed-off on the change and which buy-offs are still pending.

2 – Change Management Communication – CM Communication provides the critical change information to the right people on a regular basis so that all stakeholders remain aware of what changes are coming down the pipeline. This helps leaders to predict how upcoming changes will impact their areas of accountability and allows them time to take steps to prepare. The CM Communication could occur in the format of a weekly meeting, emails, publishing printed documents or whatever works best within the context of your manufacturing environment.

3 – Risk Assessment – This is a process that provides a safe format for all key stakeholders to assess risks and voice their concerns about an upcoming change. The Risk Assessment also provides a platform to collaborate on any mitigating actions needed to sustain acceptable business performance.

4 – Key Stakeholder Buy-offs – Stakeholder Buy-offs allow key stakeholders the opportunity to approve or dis-approve on the quality of execution of the agreed-upon mitigating actions from the Risk Assessment. Depending on how your CM System is designed, the owner of the change will likely have the obligation to provide as much evidence as needed to validate effective execution of mitigation actions. This could include test results, photos, training sign-off sheets, or any other form of proof.

5 – Change Management Review Process – The CM Review Process is a step to ensure the integrity and Continuous Improvement of the CM process itself. Its possible to develop CM metrics to measure the team on the effective execution of the CM process. For example, one metric could measure if the change owner obtained 100% of required sign-offs before the change actually took place. Another could measure the delta in OEE% for a process following the implementation of a change.

Implementing an effective Change Management System is an initiative in itself. Just like any initiative, its success or failure depends primarily on the discipline of its leaders to see it through even when others have not bought in. An effective Change Management System can be a tremendous asset for people on all levels in the factory and the company at large. It provides a systematic way to drive the changes that need to be made. So if you’re an operator on the plant floor, you can use the CM System to initiate a change for much-needed improvements in your production area. Likewise, the Plant Manager can use the CM System to ensure team engagement and support before engagement. Additionally, in the most Agile organizations, CM Systems are used company-wide to affect changes initiated across different business units such as Marketing, Sales, Distribution, Finance, or other.

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What is the mix of attitudes toward change within your organization? Is your factory’s mix of attitudes optimized for transformation?

One of the most critical factors of a successful Continuous Improvement implementation is having the right people on the bus. When undergoing this type of change, the organization is going from a steady state to a transformative state of operation. To optimize the speed and strength of an implementation, it helps to have the right mix of personalities, talents, competencies, and attitudes in place. For instance, the greater manufacturing competency (such as experience with Lean, Six Sigma, or other), the easier the implementation. In regard to personalities, it helps to have a diverse team that can bring a variety of perspectives to the table. Also, talent brings magnitude to the direction that is set for the change. However, the predominant factor in the organization’s Agility is people’s attitudes toward change at the onset of the initiative. Organizational Agility is the speed at which it can effectively change and return to steady state. Granted, people can change and judgement needs to be applied as to how much a person can change and by when, the amount of time required for people to change adds time to the implementation. As you may have gathered at this point, a CI implementation needs to happen in the attitudes and behaviors of people, just as much as it happens with other manufacturing assets on the production floor. Depending on the specific current and future needs of your business, your approach to getting the right people on the bus will vary.

One of the most profound publications on people’s attitudes toward change is “Who Moved My Cheese” by Spencer Johnson, MD. According to Spencer, there are four types of attitudes towards change which I’ll summarize below:

Sniff (or the Change Agent) identified change early. He kept things simple and adopted the change. He would represent those in the organization who advocate change for the others.

Scurry (The Supporting Agent) was eager and quick. He was flexible, aware and accepted the change that was taking place.

Haw (the Adapter) dealt with change in a different way. He was able to relinquish old behaviors and learn from past mistakes.

Hem (the Stabilizer) preferred to stay in his comfort zone and ignore the reality of the situation. He felt entitled and just trusted his needs would be met if he took the easiest path.

One of the keys to optimizing a CI implementation is finding or cultivating the right mix of attitudes. Based on personal experience, the typical organization at steady state might contain the following mix:

The point is to show a significant shift from people on the Stabilizer end of the spectrum toward the Change Agent end. This is especially true within the Leadership group of the organization. This may also require either helping people to change their attitudes or hiring/promoting/firing people to optimize the mix required to strengthen a transformation. Notice that even in a state of transformation, some population of Stabilizers is still required to support implementation. This is because Stabilizers are best suited for driving adherence to standards, which is critical for continuous improvement.

To effectively apply this model, an inventory of attitudes toward change should be taken to get a snapshot of the organization’s current state. An expert can help you determine the attitude mix required to achieve the desired future state. After the implementation has reached maturity, there should be a shift in attitudes away from Change Agents and toward Stabilizers in efforts to sustain desired changes. At any state of operation, there is an optimal mix which should be evaluated and decided upon based on the current and future needs of the business.

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Have you ever heard of an economic model where everyone makes about the same amount of money regardless of what actual value they contribute to society? Of coarse you have…just pick an American factory at random and that’s pretty much what you’ll find. The norm for US factories is to have minimal or marginal income diversity, especially among blue collar workers. Let’s look at this model in a slightly different context. Take entrepreneurship for example. Entrepreneurship usually takes a substantial degree of risk but can be tremendously rewarding if it works. Just about every entrepreneur would tell you flat out that the potential for rewards out-weighs the risk, and that’s why so many people go for it. This is one of the most powerful engines in business and for any economy. In fact, some brave soul(s) made this calculation prior to the birth of every company in existence. If you told an aspiring entrepreneur that no matter how much risk they take on with their dream venture, they would never make much more than $18/hr, do you think they would still go for it? Do you think they would bother with all the brainstorm sessions, raising capital, breakthroughs in innovation and all the exciting and sometimes dreadful aspects of entrepreneurship? Probably not so much.

This model of marginal income diversity contradicts some of the values that America is founded on. Some of those being freedom, prosperity, equality, competition, individualism, progress and change, etc. The compensation system currently used by most American companies is designed to make life easy and predictable for the accounting function. It was designed and deployed before we had computers to do the vast majority of our bean counting. The downside of the current low-income diversity model is that it gradually disengages employees and is counter-productive to the most predominant American values. In other words, it shuts the growth engine off at the shop floor level. This leaves managers scrambling to find the next motivation and performance management tactic to deploy in efforts to maintain or increase productivity levels.

So the question becomes – How can we leverage the values that have made America the most powerful economy in the world to make your company more successful? The answer lies in providing those who create value for your customer with the freedom to create wealth for themselves. Not by working slower and racking up overtime hours; but by working smarter with the time they have available. Not by asking them to claw their way up the corporate ladder in hopes for a higher salary; but by tying their value contribution to their income on a daily basis. The answer lies in converting employees into business owners that operate within the framework of the larger company.

The Value Creator Ownership Model

This is an example of a model where employees are given a tremendous degree of ownership of their work. Every employee has internal suppliers and customers, just like every business has. In this model (in the manufacturing environment), there are those who make stuff and those who provide services. Anyone not a part of the immediate value chain is a Service Provider. The compensation of those on the value chain is linked to the value they contribute on a daily basis. Those on the value chain (aka Value Creators) would be allocated a production budget. Internally (or externally) contracted services would be paid for out of that Value Creator’s budget. The Value Creator is allowed to take home whatever portion of their budget that they don’t use. Value Creators who want to increase their take-home pay might invest more in training and continuous improvement to reduce their operating costs. See my post on Value-Based Compensation for more details on how this works.

Service Providers are compensated based on being “hired” by Value Creators internally to provide a service at rates that they control. In this model, a service provider, such as a maintenance technician or trainer, could potentially price themselves out of the internal market. This provides an incentive for service providers to strive for quality and perfect their craft to keep steady business. Since Value Creators have a choice in who provides their services, Service Providers who are poor performers will struggle to find work in the factory. A Service Provider who wants to increase their pay might invest more in training so they can charge higher rates or they can foster strong relationships with Value Creators to maximize billable time.

The major benefit to this model is that the production floor becomes virtually self-managed. Poor performance anywhere results in lower pay everywhere on the value chain. If a supplier struggles to get parts made, it reduces the value that can be created downstream – resulting in reduced pay for all those affected. This makes the pain of poor performance hit home across the board and puts tremendous pressure on everyone to work together to achieve more.

This model self-corrects many of the issues that plague American manufacturers today such as resistance to change or improvement, managing individual performance, eliminating waste in activities both on and off of the value stream, and others. One of the potential drawbacks to this model is that some people may end up making less than minimum wage. Minimum wages can be instituted as well since manufacturing typically pays well over the legal minimum wage. This works out because those who don’t perform well and end up making just the minimum wage can (and probably will) easily find manufacturing work elsewhere for substantially more money. This automatically free’s up opportunities to on-board higher performers. In the end, your factory becomes a sub-economy that is driven by people’s own desires for freedom and prosperity instead of top-down command and controlling.

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One of the most dreaded processes in business is the annual performance review. Rather you sit in the giving or receiving seat of the review, its usually a pretty uncomfortable process regardless of how well or poorly the employee has performed. The problem lies in the fact that most organizations (and subsequently managers) have very poor methods for gauging an employee’s performance. The review is often skewed toward two factors 1) how the employee has made the manager feel since the manager has become more conscious about the upcoming review (usually a few weeks) and 2) how the manager’s circle of work friends feel about the employee. In other words, performance reviews are often driven more by internal politics than by actual performance. This only contributes to diminishing the overall organization’s effectiveness where actual results have less and less internal value over time.

There is often a clear a mis-alignment between what the customer pays for and what employees are evaluated on during the performance review process. Most companies are very good at measuring what the customer pays for. For example, just about every company has metrics in place to manage quality, cost, and service levels. Other metrics may be used to drive business initiatives such as a Lean or Continuous Improvement implementation. These metrics might get tossed around during management meetings throughout the year but too often don’t weigh in to an individual’s actual performance review. In a perfect world, each individual would be measured based on the amount of value they contributed to the customer and no more. An individual’s political prowess should be evident in that person’s ability to drive sustained quantifiable business results. And fortunately, with a little creativity, all business results are quantifiable to some extent.

The politics-based performance review process is the by-product of they way employees are compensated. Employees generally don’t have much control over how much money they make on a day-to-day or week-to-week basis. Employee compensation is basically fixed aside from overtime, bonuses, or annual pay increases. These long-interval compensation management tactics are designed to convenience accountants and not to leverage human psychology, which would call for immediate and real-time feedback (including compensation). Long-interval compensation management creates a comfort-seeking and risk-averse culture that is counter to what really drives business growth and high performance. An employee would be paid the same if they came in to work and created tremendous value as they would if they showed up, put up mediocre numbers, and just avoided any conflict. This environment makes it too easy to be a prosperous – at par – performer.

Contrarily, leading organizations have developed more systematic approaches to performance reviews that do a better job at quantifying the expected value contribution of each employee in the organization. Its proven that real-time feedback is the most effective method for managing people. Managers simply can’t provide real-time feedback at the level needed to develop world-class talent. The most effective performance review comes directly from the customer (or the understood measure of value for the customer). If you follow the links in the value chain through the factory, you realize that an employee’s manager is not their true customer, yet the manager is usually providing the performance review. In an ideal state, employees would get frequent feedback automatically from the business system, which should be designed based on understood value for the customer. They would be able to quickly assess how much value they have created against the expected value created for the amount of time they have worked. In this type of system, it is impossible to hide poor performance or for someone to get credit for another person’s contributions. This works best when the supply chain is broken down to clearly defined suppliers and customers at each step in the process. Then value contribution and performance management can be set up in a pull system where each employee is measured in real-time using quantitative factors with input from their immediate downstream customer. This would replace the broken and wasteful push system where unfounded opinions, gross assumptions, and biased perceptions are used to gauge a person’s performance. The next step is to evolve to a real-time compensation model that matches value creation on short intervals, which will be covered in greater detail in a future blog post. This significantly reduces the need for artificial motivation and performance management tactics that are typically used in modern business. A manufacturing efficiency expert such as those at Manuficient can help develop data-driven performance evaluation systems to put your organization on the path to World-Class performance.

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Training and People Development – The linchpin that holds any Continuous Improvement initiative together. People development is at the heart of factory performance. In fact, survey after survey has shown that a lack of workforce development is one of the greatest impediments to driving a CI culture. You can get a pretty clear picture of an organization’s agility by taking a close look at their training and knowledge management systems. When a company decides to undergo a transformation such as implementing Lean or other form of CI, they are committing to a period of substantial change in the way business is being done. This impacts individuals on all levels in the organization. Many companies believe that implementing CI is as simple as hiring a Lean expert or doing a few improvement events per year. What they don’t realize is that a CI implementation demands that everyone adopt a new set of behaviors – meaning letting go of old habits and picking up some new ones. Sometimes KPI’s, performance reviews, and coaching alone aren’t enough to get people to relinquish deeply entrenched habits. Those old habits are what kill sustainment of any initiative. If you probe deep enough, you’ll find that one of the biggest reasons for resistance to change is that people don’t believe that they, their peers, or their managers have the discipline to change. The role of the training and people development function is to close this gap, especially during a CI implementation.

In many organizations, training is simply having someone sit through a presentation and sign-off that they’ve been trained. Some go as far as to give a test or quiz at the end of the presentation to validate that learning actually did take place. Modern adult learning techniques encourage incorporating activities to engage learners, mainly to keep them from completely tuning out. But a vast majority of training programs stop there. What happens when the employee goes out on the plant floor and gets back to work? What happens when that employee gets stressed or is under pressure to hit production numbers for the day? How much of the material learned in the classroom is retained after 6 months or a year. Training, and even further, workforce development goes far beyond a classroom activity. If an employee is not performing the new / desired behavior on the job as if it is second nature, they have not been trained. Similar to a boxer or basketball player who trains for months on end before the big fight or game. The training includes learning the sport but also conditioning the mind and body to execute the desired behaviors unconsciously. Best in class training programs do provide classroom time but include auditing,continuous coaching, and corrective action until the desired behavior is ingrained. Only when the employee executes the desired behavior on a consistent basis without deviation have they been trained.

The speed at which an organization can truly “train” their human assets, the more agile the organization is. Agility is a measure of how efficiently an organization can change from one state to another. Agility is critical for a transformation at the magnitude of CI implementation. An effective training program needs to incorporate 1) Standards Development, 2) Knowledge Transfer, 3) Validation of Learning, and 4) Change Management. Items 1 – 3 are fairly common but the 4th is actually pretty rare. Change Management is the piece that requires ensuring that employees have incorporated the new behavior after they’ve returned to their work area. In many organizations, the first question people ask when someone makes a mistake is – “have they been trained?” And even though the sign-off sheet confirms that they sat through the class, they were often never really trained. In other words, the desired behaviors were never fully ingrained into their work patterns. As a change agent, you owe it to the workforce to ensure that they are actually trained, which can be verified by sampling work patterns from time to time and verifying that they match the documented standard procedure. This should be a shared responsibility with the immediate supervisor. Even better if you can foster an environment where all employees provide coaching or other corrective action to all other employees whenever deviations occur. This is trademark of how a high performance team truly works. This creates a foundation for true leaders to emerge – being those who can not only help to engineer a more perfect production system, but also lead the way on developing a more agile workforce.

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There are many cultural aspects that affect a factory’s performance and reliability. Some of the cultural elements support operational excellence and some hinder growth. Ultimately it is the role of the company’s leadership to shape a culture that propels the company toward it’s vision. This helps to instill a confidence that the business is on the right track, even if it has a long way to go. This is what is meant by swagger. Below are 10 signs that your factory or network of factories has swagger and the type of culture it needs to foster manufacturing success:

1) The employees know that they are the best at what they do. But they also know that they need to get much better

2) There is little to no tolerance for sub-par performance. The strong thrive and the weak quickly learn that their talents are better applied elsewhere

3) People don’t try to hide deficiencies in the production system. They quickly bring them to the surface and lead the charge on getting them dealt with effectively

4) People at the shop floor level gladly step up to lead Continuous Improvement activities in the factory. They can also show documented results of how their process has gotten better and how much better it can get

5) Managers put most of their time and effort toward taking the plant to the next level and little to no effort into hand-holding or micro-managing employees

6) Other factories in the network look to your factory as the benchmark for operations excellence; yet your factory actively seeks opportunities to incorporate best-practices from other factories

7) Each and every individual on the shop floor has an honest shot at becoming Plant Manager

8) Each and every manager has an honest shot at becoming Vice President of Operations

9) Promotions are based more on merit and demonstrated leadership than anything else

10) If you ask anyone who works there who they work for, they all give the same answer – The Customer

Next time you walk into a factory, ask questions to get a feel for what type of performance culture is in place. And if the signs outlined above don’t sound anything like your workplace, remember that you don’t have to accept that as a way of life. Its up to you to take action to make a difference; that’s what separates the leaders from the followers.